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48 Cards in this Set
- Front
- Back
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Economics
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Economics is the social science dealing with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants… or… the study of allocating limited resources toward unlimited wants.
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Most decisions are made at the _____
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Margin. where people compare marginal costs against marginal benefits. (marginal means additional or extra)
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Scarcity
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because our wants are unlimited, and because our resources are limited, we have to make choices with respect to how we allocate our scarce resources in our effort to satisfy those unlimited wants. Economics is the study of those choices.
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Micro/Macro Economics
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Micro studies how households and businesses make these choices.
Macroeconomics looks at the economy as a whole, or at the very large segments of the economy. |
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Assumptions
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People are rational, people respond to economic incentives, decisions are made at the margin
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Economic Problems
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What goods and services will be produced?
How will they be produced? Who will receive those goods and services? |
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Economies are organized in 2 ways:
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A centrally planned economy in which the government decides how resources will be allocated.
A free market economy in which the decisions of households and firms interacting in the marketplace allocate economic resources. |
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Opportunity Cost
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the highest valued alternative that must be given up in order to engage in that activity.
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Ceteris Paribus
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the assumption that all other things are held constant while one variable stays unchanged.
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Normative Economics
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incorporates value judgments.
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Entrepreneur
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the salary of the entrepreneur is known as the normal profit, after he has paid for land, profit, and capital the money leftover is the economic profit.
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Services
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someone who prepares taxes, medical care, etc.
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Revenue
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the money received when you purchase a good or a service,
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Profit
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difference between cost of good and the cost it takes to provide the service
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Factors of Production
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land, labor, capital, and entrepreneurial ability, (anything used in production), tangible things
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Capital
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manufactured goods that are used to produce other goods and services Ex. computers, factory buildings, machine tools
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Production Possibilities Curve
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a curve that shows the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.
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Trade
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the act of buying and selling. People engage in ____ because it makes it possible for people to become better off by increasing both their production and their consumption.
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Absolute Advantage
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the ability to produce more goods or services than a competitor can, using the same amount of resources.
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Comparative Advantage
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the ability of an individual or a firm to produce more goods or services at a lower opportunity cost than its competitors.
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Market
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a group of buyers and sellers of a good or service and the arrangement by which they come together to trade.
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Two key groups that participate in markets
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households and businesses
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Wealth of Nations by Adam Smith
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his argument was rather than having the king/president decide what how and where things were to be produced, it should be made by households and businesses. Aka. Laissez-Faire
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"Invisible Hand"
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when consumers wanted more or less of a product the market would respond as if guided by an invisible hand more or less, thus providing the consumer what they want
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Intellectual Property Rights
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Patents: gives the inventor the exclusive right to produce or sell a new product for 20 years.
Copyrights: Creators of books, films, or music have exclusive rights to use the creation during the lifetime of the creator, and heirs retain the exclusive right for 50 years after the death of the creator. |
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Supply
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a schedule or curve showing the amounts of a product that producers are willing and able to make available at each of a series of possible prices, during a specified period of time.
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Demand Schedule
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is a table showing the relationship between the price of a product and the quantity demanded of that product
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Quantity Demanded
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the amount of a good or service that a consumer is willing and able to purchase at a given price.
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Demand Curve
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a curve that shows the relationship between the price of a product and the quantity of the product demanded.
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Market Demand
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the total demand by all consumers for a given good or service.
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Assumptions of the perfectly competitive model:
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1. There are many buyers and sellers
2. All firms are selling the identical products 3. There are no barriers to new firms entering the market. |
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Law of Demand
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Ceteris paribus, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease. There is an inverse relationship. And the demand curve is downward sloping.
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Substitution Effect
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the change in the quantity demanded of a good that results from the change in price, making the good more or less expensive relative to other goods that are substitutes.
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Substitution Goods
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products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises. Ex: if price of pepsi goes down, the demand for coke goes down.
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Income Effect
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the change in the quantity demanded of a good that results from the effect of a change in purchasing power, caused by a change in the product’s price.
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Variables that shift Market Demand
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1. Tastes
2. Population 3. Income 4. Prices of substitutes and complements 5. Future expectations |
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Supply Schedule
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a table that shows the relationship between the price of a product and the quantity of the product supplied.
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Supply Curve
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a curve that shows the relationship between the price of a product and the quantity of the product supplied
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Law of Supply
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the rule that, ceteris paribus, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied. There is a positive or direct relationship between price and the quantity supplied and the supply curve is upward sloping.
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Variables that shift market supply
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1. Prices of input
2. Technological change 3. Prices of substitutes in production 4. Number of firms in the market 5. Expected future prices |
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Prices of Inputs
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the factor most likely to cause the supply curve for a product to shift is change in the price of an input. AN input is anything used in the production of a good or service. For instance, if the price of an ingredient in energy drinks, such as guarana rises, the cost of producing..
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Market Equilibrium
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occurs when the amount supplied is equal to the amount demanded. If the amount supplied exceeds the amount demanded, there will be a surplus. If the amount supplied is less than the amount demand, there will be a shortage.
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Gov intrusion in the free market
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Price ceiling – a legally determined maximum price that sellers may charge.
Price floor – a legally determined minimum price that sellers may receive. |
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Consumer Surplus
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The difference between the highest price a consumer is willing to pay for a good or service and the price that the consumer actually pays. Consumers are willing to purchase a product up to the point where the marginal benefit of consuming a product is equal to its price.
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Marginal Benefit
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the additional benefit to the consumer from consuming one or more unit of a good or service.
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Producer Surplus
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the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually gets. Firms are willing to supply an additional unit of a product only if the price they receive is equal to the additional cost of producing the product.
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Marginal Cost
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the additional cost to a firm of producing one more unit of a good or service.
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Total Market Producer Surplus
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= to the area above the supply curve and below the equilibrium price
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